Market movers today
We end the week in a quiet fashion, with only tier-2 data releases on the agenda. As markets remain caught between the soft-landing vs. overheating narrative, a range of Fed speakers could get market attention this afternoon in terms of their assessment of this week’s data releases.
In Sweden, we look for a further rise in unemployment during January.
The 60 second overview
US: The US January PPI surprised to the upside yesterday both in headline (+0.7% m/m) and core (+0.5% m/m) terms. Prices rose rapidly for both goods and services, but especially the sharp uptick in core goods PPI (+0.6%) suggests that Fed’s anticipated disinflation has taken a breather. In the evening, Fed’s Mester (non-voter) admitted that demand was not softening as anticipated, and did not rule out a larger hike at the March meeting. Bullard (hawk, non-voter) called for a terminal rate of 5.25-5.50%. The hawkish tones combined with the strong data weighed on equity and bond market sentiment and supported the broad USD. Markets are now pricing in over 50% chance of Fed continuing its hiking cycle beyond May.
US-China relations: Last night, US president Biden commented that he is expecting to discuss the issue of Chinese balloon that US shot down last week with Xi Jinping in the near future. Earlier yesterday, China banned Lockheed Martin and Raytheon from exporting to and importing from China by placing the companies onto its ‘unreliable entity list’, most likely as a retaliation to the balloon incident (see Reuters). The list was created during the trade war with Trump, but so far no companies had been placed on it. Chinese officials commented previously that China ‘is strongly opposed to this and will take countermeasures against relevant US entities that have undermined our sovereignty and security’. The balloon was shot down by an F-22 fighter jet produced by Lockheed Martin, using an AIM-9X Sidewinder missile produced by Raytheon.
War in Ukraine: Next week, on 24 February, it has been a year since Russia started its unprovoked attack on Ukraine. Last weeks have brought no signs of the situation calming down, as Russia continued its barrage of missile strikes yesterday, hitting Ukraine’s largest oil refinery. Western officials including German Scholz and French Macron gather at Munich today to discuss the situation. We take a look at the long-term consequences of the war in Research Russia-Ukraine: One year since Russia’s invasion – Europe faces three changes as it settles into new reality, 17 February.
Equities: Equity sentiment turnaround late yesterday in the US cash session. No major changes to the economic narrative with data still pointing to overheating. Yields moved higher as Fed members started talking about the need for another 50bp hike. It should not be surprising to see the cyclical growth stock disliking this, the surprising part is how resilient they were earlier this week. In US, Dow -1.3%, S&P 500 -1.4%, Nasdaq -1.8% and Russell 2000 -1.0%. Asian markets are lower this morning in line with the negative development on Wall Street yesterday. More interestingly, US futures down again this morning led by growth stocks. European futures also lower but not much in light of the relative outperformance by European cash yesterday.
FI: The European bond market remains under pressure from both hawkish comments from some of the more hawkish ECB members (Nagel), while ignoring some of the more dovish members such as Panetta and Stournaras as well as Lane. Lane argued that much of the impact of the rate increases has yet to be seen on inflation. Hence, there seems to be growing difference between the ECB members on the size of hikes going forward. FX: Weaker SEK with EUR/SEK spending this week edging slightly higher yet within the 11.10-1120 range as the Riksbank effect is fading for now. Also NOK has been trading on the back-foot. Sterling is weaker while cable back below 1.20. USD stronger vs EUR, JPY and CNH where USD/JPY is making new year-highs, approaching 135. Credit: The credit markets traded sideways yesterday, still trying to balance the risk of central bank hawkishness versus the chance of a more benign economic outlook. ITraxx main was unchanged at 75.6bp while Xover widened 0.5bp to 393bp. The overall risk appetite for new issues remained intact resulting in another busy day in the primary markets, where for example Telia printed a 9Y EUR500m issue at a spread of MS+73bp (corresponding to a yield of 3.8%).
Nordic macro
Sweden: Today, we receive the Swedish labour market report for January. Unemployment has shown a modest increase since the bottom this summer. On the back of deteriorating fundamentals in terms of rising layoffs, slowing hiring plans and bankruptcies, we would expect a further rise in unemployment.
